I selected the entire hard disk so that all my applications, photos, and virtual machines would be restored back to its original location when my computer is back. There are a couple of quirks that you need to know when restoring your computer for the first time. When you first power on your computer, you'll be prompted to create a new user account. Make sure you create an account with a different name. That means if you have an account called Tim, create one called restore or whatever you want when prompted. This will allow you to install the proper OS updates and get you on the same build as your backup. It will also prevent problems restoring files back to the original location if you use a different username during the initial setup. Another quirk is your backup volume. If you have Snow Leopard or an older build, there isn't an easy way to reassociate your backup volume to the restore computer. You're forced to create a new backup set or plug in a drive with more disk space. Fortunately Lion and newer builds allow you to associate the old backup drive when you plug it in. If it doesn't, follow this link.
The entire restore process didn't require very much input from me. It took approximately 4 hours to restore roughly 200GB of user data. In the end, all of my applications and associated data were preserved. I was pleasantly surprised at how easy it was using Time Machine backups. I even booted up my virtual machines and their network settings were preserved. I was back to a point before I took my computer in for repairs.